When it comes to building real estate platforms, CoStar Group (NYSE: CSGP) has proven time and time again that it can quickly achieve dominance. However, its second-quarter earnings show that taking on the massive world of residential real estate property might take a little longer than anticipated, and this caused the market to react negatively.
The good news
There was plenty of good news in CoStar's earnings. Total revenue for the second quarter was up 21% year over year to $480 million, handily topping the high end of its previous guidance. Adjusted EBITDA came in at $150 million above the $135 million it had forecast. Even more interesting is the rapid growth in visitors to CoStar's platforms. It saw a 47% increase in unique visitors to its websites, such as Apartments.com and LoopNet.
CoStar's original business of selling access to its commercial real estate data is doing well. CoStar Suites' quarterly renewal rate for the second quarter of 2021 was a very solid 94.5%. It has seen good results on its integration of CMBS loan data. On the earnings call, CEO Andy Florance mentioned that 45,000 users have accessed the data over half a million times and that the company plans to roll out a new CMBS analytics service that aggregates loan and property data across 1,000 markets.
There was also positive data from LoopNet, the company's commercial real estate marketplace. LoopNet revenue grew by 18% year over year. The company has been spending money marketing LoopNet on social media as well as on television to increase visibility. It hit a record average monthly traffic of around 10 million unique visitors in the second quarter, and traffic is up about 33% year over year.
Meanwhile, over at Apartments.com, those Jeff Goldblum ads are paying off. The site saw visitors up 30% year over year, hitting a new traffic record. More traffic means more leads for CoStar's customers. In fact, leads are up so much that CoStar is planning to adjust its pricing.
CoStar is trying the celebrity approach on another of its properties. Ten-X, the commercial auction platform, tapped Keegan-Michael Key for its ads. CoStar bought Ten-X in June 2020 and has seen revenue increase with a 35% increase in transaction volume and a 30% increase in the number of properties brought to the platform.
The long road ahead
While the list of CoStar's positive achievements is lengthy, it's got a lot of work ahead to turn its recent acquisitions of Homes.com and HomeSnap into profit-generating engines.
On the earnings call, Florance explained the vision to turn Homes.com into a larger homebuyer portal combined with HomeSnap as the agent's professional platform. He believes that once these two sites are integrated, it would create a seamless way for agents to manage and market listings. The unsaid being that the platform would then be a worthy competitor for Zillow, Redfin, and Realtor.com. In order to do this, the company plans to raise the amount of investment it spends on this project to $25 million. While HomeSnap did deliver revenue above expectations, the cost of building a truly effective residential platform is significant. The company is still projecting strong growth for 2021 but has revised its outlook for full-year adjusted EBITDA to come in between $605 and $615 million.
The Millionacres bottom line
While CoStar shares may have dropped temporarily on the news, the company obviously still has a lot of strong revenue-generating potential across multiple platforms. Florance, who founded CoStar in 1987, has proved to be a nearly indomitable force in real estate. However, commercial real estate and residential real estate are two different worlds, and he has never faced the breadth of competition that he'll need to best in order to turn Homes.com from an also-ran to a residential superstar. If he can do that, he can create a viable alternative to Zillow for real estate agents who are looking to buy leads.